The Construction Contracts Act 2002 (CCA) establishes a crucial framework for maintaining a steady cash flow in the building and construction industry. Central to this framework are Payment Claims and Payment Schedules, which play a pivotal role in ensuring timely and fair payments. This guide aims to provide clarity on how these mechanisms function.

Understanding the Application of the CCA

The CCA applies to contracts related to “construction work.” This encompasses a wide range of activities, from construction and alterations to maintenance, demolition, and design work. Essentially, if it involves structures, land, or preparatory work, it falls within the scope of the CCA.

The Payment Regime under the CCA

The payment regime outlined in the CCA ensures that payments are made consistently during a building project. The payee (the party carrying out the work) issues Payment Claims for the work completed. The payer (the party for whom the work is being performed) must respond within a specified timeframe by either paying in full or disputing the Payment Claim through a “Payment Schedule.”

Payment Claims: A Closer Look

A Payment Claim is a formal request for payment made by a contractor, subcontractor, or consultant to their client. While it can take the form of a detailed invoice, it must meet specific requirements:

1. It must be in writing.
2. It should contain enough details to identify the related contract.
3. The Payment Claim must specify the work and the relevant period.
4. It must state the claimed amount and the payment’s due date.
5. The Payment Claim should clarify how the amount was calculated.
6. The document must be explicitly marked as a payment claim under the CCA.

Frequency of Payment Claims

Typically, Payment Claims are issued monthly, unless the building contract dictates otherwise. If the contract is silent on the matter, the first Payment Claim covers the period from the work’s commencement to the end of that month, with subsequent claims following a calendar month-to-calendar month schedule.

Late Payment Claims

If your building contract doesn’t address late invoicing, late Payment Claims might not be considered valid under the CCA. In such cases, it is advisable to wait until the following month to issue a valid claim.

Payment Schedule Essentials

A Payment Schedule is issued by the client when they dispute part or all of the claimed amount in a Payment Claim. While there is no standardized form for a Payment Schedule, it must meet certain criteria:

1. It must be in writing.
2. The Payment Schedule must identify the related Payment Claim.
3. The document should state an amount (the “scheduled amount”) to be paid, which can even be $0 if the client disputes the entire claim.

Additional Information in Payment Schedules

In cases where the scheduled amount is less than the claimed amount, the Payment Schedule must include:

1. An indication of how the scheduled amount is calculated.
2. An explanation of why the scheduled amount is less than the claimed amount.
3. If payment is withheld, the reasons for withholding payment must be provided.

Issuing and Receiving Payment Schedules

Payment Schedules should be issued within 20 working days of receiving the Payment Claim, unless the building contract specifies a different timeframe. Failure to pay, issue a Payment Schedule, or issue one that disputes only a portion of the claimed amount within the stipulated timeframe allows the payee to suspend work under the CCA. This can be enforced, even if the building contract does not provide for such a suspension. The payee also retains the right to initiate an Adjudication process under the CCA or commence court proceedings to recover the full debt.

Disputing a Payment Schedule

If you disagree with a Payment Schedule, you can initiate the dispute resolution process defined in your building contract or opt for an Adjudication under the CCA.

Understanding Payment Claims and Payment Schedules is essential in the building and construction industry. The CCA’s provisions are designed to maintain fair and regular payments throughout the project. By adhering to these guidelines, all parties involved can navigate the payment process efficiently and equitably. If you have questions or concerns, it is advisable to seek legal advice for a comprehensive understanding of your rights and obligations under the CCA.